Chavez seeks gold-mining venture with Russians

RACHEL JONES, The Associated Press

President Hugo Chavez is awarding a valuable gold mining concession to a joint venture between a Russian-financed company and the Venezuelan government, in an apparent bid to secure new sources of state income as oil prices fall.

Venrus, a joint enterprise formed last year between Rusoro Mining Corp. and a Venezuelan state holding company, will begin developing the country's largest gold mine, Las Cristinas, this year, Chavez told Congress late Tuesday.

A Rusoro spokesman at the company's headquarters in Vancouver, Canada, declined to comment Wednesday on the deal.

The Venrus concession apparently ignores an exclusive contract that Venezuela's government had granted Toronto-based Crystallex International Corp. in 2002 to develop four sections of Las Cristinas. Crystallex's request for a final permit to start digging there was denied in May, but the company on Wednesday said it had not been informed of any changes in its deal.

The move would boost Venezuelan state control over the country's gold reserves, a potentially lucrative resource, said Pavel Gomez, an economist at the IESA business school in Caracas. Those reserves could, in time, compensate for falling oil income and allow Chavez to continue his broad public spending.

Venezuela depends on its vast oil resources for half the federal budget and 94 percent of exports, and Chavez has said he hopes to use other resources to diversify the main sources of state funding. But the country's precious metal sector has been largely controlled by a handful of private foreign companies.

Chavez is now awarding to the Venrus joint venture five of Venezuela's biggest gold concessions – including one called Brisas del Cuyuni and four in Las Cristinas, which holds an estimated 1,100 tons (998 metric tons) of gold.

He said the venture would help double Venezuelan gold production to 9 tons (8.2 metric tons) in 2009. South Africa, one of the world's top sources of gold, produced to 275 tons (249 metric tons) in 2007.

Rusoro, which was founded by a group of private Russian investors and trades on Canada's TSX Venture Exchange, has recently increased its presence in Venezuela, purchasing Idaho-based Hecla Mining Corp.'s Venezuelan subsidiaries for $25 million in June.

It also offered to buy all outstanding shares and equity units in Spokane, Wash.-based Gold Reserve, which holds the Brisas concession.

Gold Reserve refused the offer, suing to stop the hostile takeover from progressing. The Ontario Superior Court of Justice will hear its case Feb. 4, according to a statement on the company's Web site. Gold Reserve President Douglas Belanger did not return calls for comment.

Venezuela also plans to rejoin the Kimberley Process – an international accord to stem the flow of conflict diamonds – in order to exploit its diamond reserves, Chavez said. Venezuelan diamonds have been barred from mainstream world markets since it abandoned the agreement last year.